The key chart
Trends in market share (%) of global debt since June 2009 (Source: BIS; CMMP)
The key message
Whisper it softly; the “emerging market” (EM) classification has been redundant for some time now.
CMMP analysis has questioned the relevance and usefulness of the “emerging market” classification for some time. The latest BIS data release, merely supports this view, at least from a debt perspective.
EM’s share of global debt has increased from 18% in June 2009 (at the time of the GFC) to 40% in June 2023 – a remarkable structural shift (see key chart above).
Over this period the EM debt ratio has risen from 97% GDP to 156% GDP, and is now only 6ppt below the debt ratio of so-called “advanced” of “developed markets” (DM).
For reference, the DM debt ratio has fallen from 174% GDP at the beginning of this period and from its all-time high of 183% GDP in 4Q20.
These dynamics have supported a popular investment narrative called, “The EM-debt story”.
In my previous post, however, I noted that all sectors of the Chinese economy are increasing their levels of indebtedness and that all their debt ratios hit new highs in 2Q23 (see “Whisper it softly – Part III“).
The key point here is that if we strip out China, EM’s shares of global debt has only increased slightly since the GFC, from 10% to 13%.
What this means is that rather than witnessing an EM-debt story, we have, in fact, been witnessing “The China-debt story” since the GFC.
So what?
While the EM classification remains convenient, it is increasingly less relevant and/or helpful in terms of understanding the impact of global debt dynamics on macro policy, investment decisions and financial stability.
Please note that the summary comments and chart above are abstracts from more detailed analysis that is available separately.